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BYD + Tesla mashup, Baidu Apollo Driverless permits, MGT Positioning at VW Group - SAI Newsletter 31


An interesting next couple of weeks for me. Early next week as many of you may know, I’ll be heading back to the US for the first time in almost 2.5 years to visit family, re-engage with friends, partners, clients. meet new friends as well as potential clients. The craziness of it all is that some people that I’ve met digitally and have now become part of my network of friends, I’ve NEVER met in real life! One terrific example is Lei Xing. We’ve worked together now for over a year, just recorded our 9th MAX episode and 77th China EVs & More podcast but have never met! Looking forward to doing that in the next month or so. As well as quite a few others. It’ll be a whirlwind tour as I’ll be kinda all over the place and plan to visit SF, LA, Austin, Pittsburgh perhaps DC, NYC and possibly Toronto. On top of that, I’ve only purchased a one way for now. If you are in Detroit for the auto show, ping me and we can meet up! I’ll continue to write the newsletter and of course host the pod with Lei but there may be a brief hiatus for the newsletter and pod next week as I find my bearings and pig OUT of some really unhealthy food (read: square pie & Potbelly to name just two…). I had a peek at the new Avatr 11 & Lotus Eletre this week as seen in the pics above. The Avatr had a popup in Sanlitun next to the Intercontinental hotel while the Lotus had set up a small kiosk inside of the Guomao building next to Shake Shack. Initial take on the Avatr. Exterior shape was aggressive and pleasant - I liked the lines and it was a clean design as well. The pop up had this noir/Darth Vader/goth vibe that made it a bit weird and difficult to see the specific lines and curves clearly though. The interior wasn’t anything groundbreaking or ultra-luxe but I can see a market for it among the younger professionals here. Does that translate into 2-3K/month or 7-10K/month remains to be seen but I think it’ll likely be somewhere between the both. Initial take on the Lotus Eletre. It was nice. A bit unassuming. And that’s likely a problem. At the premium SUV/crossover segment that’s >¥600K, it needs to really be about something(s). There was no way to tell if it has real Lotus DNA (handling and quickness), but I was assured that it would. But how much do they lean into Lotus’ history here to move the metal? There’s a lot of educating that needs to be done in China since the Lotus brand isn’t likely well known outside of a small, very male, very sportscar oriented group. One agency I spoke with said that the Eletre is trying to take customers away from the Lamborghini Urus, but I really see this as an SUV that more women will gravitate towards and if that’s the case, it likely makes sense to lean into its British-ness but will marketing its racing heritage help grow the pie for them with that segment? Lots of questions to be answered yet. I also want to point out that when talking about new products here, we are debating more and more along the lines of marketing, branding, positioning, messaging & features. Being an EV isn’t enough anymore and the assumption is now that you’d better have a good lineup of connected features and a range of >500km or it’s not going to attract any customers. Those are now qualifiers. This is because the market has become so crowded with brands & products that it’s the ones that are able to build brands that resonate who will consequently be the leaders of the China market. Think NIO. And Tesla. This won’t push them to the top of the heap since they’d also need to be operationally efficient which many of China EV Inc are still learning on the fly to do. See NIO. The Lotus brand is a known commodity so that’s definitely a (+), but how to make it more attractive to a wider audience – that’s the art part of it. An amazing product ALWAYS makes that easier but from a design standpoint, I just don’t know how much the Eletre will move the needle for people when there are so many other options out there. China EVs & More is scheduled this week for Thursday, 08.11 – 9pm EST, Friday, 08.05 – 9am China local time so meet us in our Twitter Spaces room then to get a download on all that’s happening in the space. Those that can’t join, the China EVs & More podcast is available wherever you grab your podcasts from. Most of our back pods are posted and the descriptions will be able to tell you what we discussed that particular episode. TESLA - Made in Berlin (MIB) Model Ys with BYD blade batteries should be rolling off the line in the next month. So the blade battery WILL at least be part of the Model Y setup. But will that be globally? We know that both BYD & CATL will also be building factories eventually in North America (likely MX or the US or both) so does this portend the direction for the US made Model Ys as well? It wouldn’t make a lot of sense to qualify the BYD blade for just the Made in Berlin (MIB) Model Y so Tesla is likely qualifying both the blade and CATL battery cells and using the MIB as a pilot to test the blade’s capabilities, durability, and reliability. If the numbers work, I’d think they’d utilize the battery that works best within the Tesla ecosystem. An even likelier scenario is splitting the supply perhaps 70/30% with the most robust setup getting the 70% and then using that as leverage for the other supplier to either get their costs down, their capabilities up or both. Remember that Tesla is likely going to build ~1.5M vehicles this year and should get close to 2M next year so that’s a HUGE supply contract for both sides of that 70/30 equation. Stay tuned, there’s definitely more to come on this. - Elon sells another $7B worth of Tesla stock to potentially fund his acquisition of Twitter. Tesla fanbois freak! The Tesla stock has made many folks a small fortune so any move that could cause Tesla’s market cap to shrink leads to a freak out by the Tesla STANs. Recall that he sold about $8.5B of Tesla stock in April so perhaps he thinks the courts will force him to acquire Twitter after all? He needs to watch how much more he sells or potentially lose control of the company so let’s see if he can either get out of the transaction completely while paying a small penalty or reduce the price from $44B. Let’s see what type of skills Elon and his legal team have! IN THE NEWS - Baidu Apollo the first in China to receive driverless taxi licenses. This is similar to the licenses that Waymo & Cruise have in SF but this won’t be for middle of the night rides when no one is on the road in a city of 700K people. On top of that, most of you know that Chinese roads generally are MUCH more chaotic than western pavement so this is a HUGE step for the Chinese AV sector. The cities where they’ll launch small pilots – Wuhan (pop. 11M) & Chongqing (~9M). Both cities are mild weather cities that don’t have much of a snowy winter which bodes well for running year-round. Also recall that the city of Shenzhen formalized their policy towards the testing of non-safety driver robotaxis in large parts of the city. There technically needs to be someone in the vehicle, but they can sit in the passenger side. We should see this back and forth between China and the US as for the foreseeable future as one tries to up the other with regards to AV friendly policies, but this is also where China has a distinct advantage since there tends to be more top down coordination at the central govt level that fans out to the provinces and major cities. In the US, it’s a crap shoot depending on the state/city leadership. For those that haven’t had the pleasure of driving or riding around a typical Chinese city, DeepRoute posted a video recently that showed off their capabilities driving around Shenzhen without said safety driver, you can view that here. It gives you a first person view of what we deal with on a daily basis driving around. BTW, the lower tiered cities are even more challenging and chaotic! - Power shifts at VW Group as Blume brings in some of his own lieutenants and management elbows for positioning. Blume making some power moves to show that he’s in charge? Perhaps but it also seems like he’s trying to appease the folks that promoted him into his role as global CEO of Volkswagen Group. At the end of the day, there are three things that VW needs to improve in order to compete with the US & China’s best and that’s creating a new culture built on aggressive decision making, moving faster and consuming themselves with becoming better software developers. With their current trajectory and recent results in China, I think within the next 5-7 years, Volkswagen group is going to be much smaller than their current footprint, whether they like it or not. How drastic and necessary this size change will be is going to completely depend on how soon they can make all the tough decisions that Diess was trying to pull ahead in order to improve the three things I just mentioned they need to improve. Diess wasn’t wrong. He just pissed so many people off on his way to disrupting the company that he wasn’t going to be able effectively to do his job. Will Blume know when to use a light touch and when to drop the hammer? This isn’t complicated. Culture, speed and software. But it’s hard. - Farley admits Ford is too fat, needs to slim down in order to have enough capital to fund its clean energy & services driven future. When Ford made the announcement about separating their EV & ICE operations into two distinct companies, we knew that those on the ICE side would be scrambling to find a way to get to the EV side, right? Well, time to pay up as Ford is looking to shed 8K employees mostly on the ICE side. This isn’t a ‘Ford’ problem though, this is a legacy challenge that they’ll ALL need to deal with. And we’re talking up and down the supply chain, pre & post sales and everything in-between. It’s funny that Diess got his hand smacked for saying just about the same thing but not a peep from the UAW on the US side. And this isn’t something that can happen over several years, shrinking needs to happen sooner rather than later if they’re to free up that capital that they need to build those battery factories, secure raw materials, etc. and inject urgency into the remaining team. A reminder: Tesla and China EV Inc aren’t slowing down. TRENDING ON SOCIAL MEDIA - The Cadillac Lyriq gets some positive reviews in the US but will that translate into sales there and in China? I’ve only seen the Lyriq in real life on a rotating stand so I can’t tell you my thoughts yet but I do like what I see. For the China market, I think it’ll sell fine but will it be a hit? That will depend on how integrated it can become to the young Chinese consumer’s digital life. As for the US, I see this really being an opportunity to re-introduce themselves á la Jay Z to an American audience that likely needs a gateway to the completely digital experience many Chinese EVs provide. That’s why physical knobs, dials and buttons still matter for the US market. The writer is correct about one thing. That Cadillac is NOT known for crossover/SUVs in the two countries that LOVE them so will that hinder folks from giving the Lyriq a fair shake? GM hopes not. - GM on autonomous vehicles. ‘Trust us.’ At least more than you trust Tesla. GM is rolling out its next iteration of ADAS called Ultra Cruise next year and GM has speculated that it would cover 95% of driving tasks for the driver. Now, this is still a feature that needs the driver to actively monitor what’s going on. GM has seemingly created a wall between what it offers as ADAS in its passenger vehicles vs. what it’s autonomous vehicle (AV) division Cruise is capable of and that’s a complete robotaxi without a steering wheel and accelerator/brake pedals. They seem to be referring to Tesla without saying the name in order to differentiate how they value safety and their ability to truly be first to market. For most objective third parties that have experienced or follow the AV sector, Full Self Driving is NOT ready for primetime regardless of what Elon and the Tesla STANs tell you. With increased scrutiny by NHTSA on the accidents caused by Tesla’s Autopilot/Full Self Driving could we see more regulations to reign in some of Tesla’s ambitions of rolling their software out to even more Tesla owners? - BYD fighting to become not only the largest EV manufacturer in the world (very likely to happen within the next 2-3 years) but also the largest battery cell manufacturer as well (quite possible within the next few years too). July saw CATL continue to dominate the share of battery installations for the China market at 47.19% but that’s down from June’s 49.6%. Contrast that with BYD who’s June share was a respectable 18.53% but jumped to 25.23% in July. With BYD confirmed to be supplying Tesla with blade batteries for the MIB Model Y, is CATL starting to hear footsteps? What’s going to be their counter? My guess is sharpening their pencil to lower pricing, right? But that could open a can of worms with other customers if they don’t see any price reductions. Stay tuned and grab your popcorn, this is going to be one of the top supplier battles globally for the mobility sector over the next 10 years! INTRODUCING - The Hongqi LS7. We normally don’t give many ICE vehicles play in this newsletter, but this is a special vehicle from Hongqi (Red Flag in Chinese), It’s basically Hongqi’s version of the Lincoln Navigator or Cadillac Escalade with get this – 4 seats! If that wasn’t enough it’ll run you a cool $215K or the price of about 1.5 Escalades. - Zeekr’s 2nd product: The 009 MPV. First impression – strange. The Zeekr 001 was a mad attempt at a grand tourer, and I thought it was an admirable 1st effort but with the boxiness of the 009 along with the wasabi grater front grille just makes it a bit odd. If they think this design will work outside of China, they’ll need to rethink this design language altogether because I see nary a resemblance to the 001. Am sure there are buyers here in China for it though, likely in the lower tiered cities. GET SMARTER - Asia’s carbon prices, where ~60% of the world’s population resides, aren’t significant enough to change behavior in the region and in turn will not help them reach their net zero goals. Basically, many Asian countries are unwilling to develop tougher policies on emissions & pollutors unlike their European counterparts who’ve made the commitment to penalize pretty severely companies that pollute. An example of the HUGE delta between the Europe and Asia carbon price / ton – China’s carbon price (the world’s largest emitter is <$9/ton vs. Europe which is closer to $80/ton. That just ain’t gonna get it done. This article is worth a read so make sure to click the link. - The story behind the story of chip innovation at TSMC, Samsung and now SMIC. The semiconductor sector is a really fascinating study in innovation, grit, growth and a will to do more. What was a commodity in the early days that wasn’t that important to analog products to now being essential to some of the most simplest digital products, chips rule the world and will for the foreseeable future and one of the more notable people that has driven the sector forward is Liang Mong Song. This is a short article that doesn’t get into too much detail about all of the other stuff that helped Taiwan become the king of chip fabrication, a title they’re not likely to concede without a major fight but it’s a start and for those that aren’t that familiar with how the sector became one of the most important in the world in such a short period of time should start with the basics. There are also a lot of American companies that were early innovators in chip design & fabrication but as things got more expensive, the western companies decided to focus on the design and offload the fabrication to a tiny island that wasn’t on many people’s radars ~35 or so years ago. With regard to Liang and SMIC, he may be brilliant, but a big part of success for the companies he led - recruiting Taiwanese engineers with deep experience in the fabrication process like Mr. Liang to work in China for Chinese companies. That pipeline of essential, experienced engineers has been closed by the Taiwanese government so if China is to become a global player in the high-end, most powerful chips, they’ll need to do it with many more homegrown, inexperienced engineers. BY THE NUMBERS - 22,819. That’s how many XPeng G9’s were pre-ordered 24 hours after it opened for pre-sale. I’ve said this before about other products from other EV companies but with a lineup of products that get older by the day as new ones with better features and designs enter the market, the G9 is a tremendously important product for the folks in GZ. Especially after this horrific accident happened with a P7 in Ningbo that resulted in a fatality. —— This weekly newsletter is a collection of articles we feel best reflect the happenings of the week or important trends that have effects on the automotive and mobility sectors here and in the US, we also provide a point of view that we hope educates and sparks debate. The Sino Auto Insights Team


Sino Auto Insights is a Beijing, China-based market research and advisory firm that specializes in assisting companies analyze, strategize, and develop products and services that will shape the future of mobility and transportation. Members of our team have experience working in Detroit, Silicon Valley as well as here in China across multiple sectors and functions as entrepreneurs as well as working at larger companies like Apple, Google, Amazon, GM and FCA, and many others.

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